Even though milk production has slowed and consumer confidence remains reasonably strong, University of Wisconsin dairy economists Bob Cropp and Mark Stephenson are warning that the first quarter of 2016 could yield some bleak milk prices.
They say Class III prices could fall below $14 by February, and Class IV could dip into the $12 range. They do expect Class III prices to rebound to the low $14s in the second quarter, to $15 to $16 in the third quarter and to $17 by the fourth.
Weak exports are the main reason why. Cropp notes that cheese exports are down 10%, whey is down some 30% and butter is down 60%. And with food buyers now meeting their Christmas/New Year holiday needs, dairy markets have taken major dives.
“The cheese market is down 25¢ from a few weeks ago and butter is now below $2/lb. I hope cheese has bottomed out, because I think the markets over re-acted a little bit,” he says. But those lower prices equate to a Class III price of $13.50 or so, he says.
Neither Cropp nor Stephenson expect much expansion in 2016, given these low milk prices. Plus, El Nino weather patterns in New Zealand means pastures there are drying up, and milk production could contract 7-10%. On the other hand, milk production growth in the European Union, particularly in Ireland, will likely more than offset the decreased production from Kiwi pastures.
But there is still some level of hope, especially if exports rebound as the world eats its way through surpluses and a lid is kept on expansion, they say.
You can view all their comments in a 10-minute video here.